SEC to issue warning on reverse mergers

WASHINGTON The U.S. Securities and Exchange Commission is on the verge of releasing an investor bulletin outlining the risks involved with reverse mergers, SEC spokesman John Nester said on Thursday.

The bulletin, which will be released as soon as Thursday, comes amid a rash of accounting scandals involving China-based companies that are listed on U.S. exchanges. The SEC is conducting a broad investigation into the accounting irregularities and audits of Chinese and other foreign companies.

Some of these companies have gained access to the U.S. markets by merging with merging with shell companies here, even though most of their operations are overseas. The probe has led to trading suspensions, and in some cases, auditors for the companies have resigned.

Nester said the bulletin will describe reverse mergers and identify the risks of investing in them. It will also highlight the recent actions by the SEC to suspend trading in some of these companies.